As a financial planner, my prayer to the Lord is that everyone should get one good jolt early in life with respect to their finances. That will ensure that they realise what money is and be more careful with it. Many people have wrong conceptions about money. They confuse speculation with investment. And God forbid, if they taste success early on, they continue to make blunders. And they keep increasing their stakes, just like a gambler, till one fine day it all crashes down like a pack of cards.
Balance is difficult to achieve. In one of the movies, a drunkard rummages through his kitchen for something valuable to sell and support his addiction and starts picking up spoons and ladles, as all other valuable things had been sold. Some are addicted to equity shares. For them, investments start and ends there. For them, investment means buying in the morning and squaring off in the evening. Many others do that several times during the day. There is no question of diversification. These "investors" do not want to consider other assets, as that would not give the returns that equities do.
There are others who swear by property. For them, buying land and houses is second nature. These people, again, don't have the faintest idea of a balanced portfolio, where other asset classes also need to co-exist. In their case, to compound the problem, there may be huge loans, too. There may be a customary PPF here or an FD there, but that is only till they find the next plot of land, when it gets liquidated too. That is what happens when people get attached to particular segments like property or equity.
A proper balance among assets is essential. Asset allocation can vary from person to person, depending on their station in life, years for retirement, income levels, whether there are one or more breadwinners in the family, the risk-bearing capacity, current status as far as investment/insurance is concerned. It is intuitive to understand that a basket of investments is less risky as compared with concentrated investments. This is one of the important tenets to bear in mind.
Usually, an investor is advised to choose asset classes that s/he can understand. The legendary Warren Buffett does that. There is no point going into equities, options and derivatives, structured products, complex insurance plans and so on. A lot can be achieved by simple investments. Growth investments can be through mutual funds and some property investments. Debt investments can be made through FDs, PPF, FMP, senior citizen savings schemes, bonds and debentures. You can go for insurance through simple protection products. If all this is done in an appropriate mix, you have done your job for this life. It is better to consult an advisor, rather than getting these wrong.
Reaching goals depends on these simple actions.
